Ideas and IP are the new product

As my final sally into the intellectual capital topics introduced by Mary Adams in her book Intangible Capital I wanted to respond to one other question that Mary posed.  She asked - what's the relationship between innovation and intangible capital.  My answer to that is to paraphrase Keynes by saying we're all innovators in the long run.

In today's economy every business is an idea business.  Think about it carefully.  Is there a business you can think of that isn't constantly trying to improve its operations, cut costs, increase market share?  From the most automated manufacturer to the firms that make a living spitting out ideas for other firms, every firm is in the idea business.  It's simply a matter of how the ideas are used.  In many firms that would scoff at the concept that they are idea businesses, the focus of idea generation is on improving productivity and efficiency.  Yes, firms that use concepts like Lean and Six Sigma are generating and applying new ideas - they may not consider themselves "innovative", but the ideas they generate are meant to improve the bottom line or the top line.  Firms that have specific innovation functions are  clearly generating ideas to differentiate, disrupt other markets or create organic growth.  Firms that have deep R&D skills are creating ideas to add depth to intellectual property, patents and trade secrets, which adds value to the firm.  Service industries that generate ideas to radically improve customer experience are generating ideas to differentiate in a completely different space, but those ideas are no less important or valuable.

There's a misconception about innovation that seems to suggest that ideas that don't introduce sweeping change or become a patent or other intellectual property aren't "innovation".  The fact is that every business today competes on the value of its ideas, they just differ on how the ideas are applied and implemented.

If you'll accept my hypothesis that all businesses are therefore idea businesses, then ideas and intellectual property are the "new" product.  They may not be the "only" product your business creates, but they are a valuable product.  The question becomes then, what does your "idea factory" look like?

I'm going to assume that most businesses that don't consider themselves "idea" firms have optimized their processes and factories to get the most output per unit of input.  They've optimized their productive resources and have highly tuned product production or service production.  Much, if not all of their investment goes into improving these processes or factories to make them ever more efficient.  But what about innovation and idea generation?  If we accept that all firms are idea firms, then what do we do about the idea processes?  Where's the optimized "idea factory"?

Just as you can't create good products without a well defined process and optimized factory, you can't sustain good innovation without a well defined process and optimized "idea factory".  And if we are now all idea firms, we'd better get started designing, developing and improving our abilities to consistently generate good ideas.  Whether those ideas are implemented internally as improvements to existing processes or products, or implemented externally as new products, services or business models is somewhat beside the point.  Ideas are the new product and the one most likely to sustain your firm over time.

The linkage between innovation and intangible capital?  It's the same as the linkage between manufacturing processes and finished products.  We have gleaming factories that generate thousands of finished products.  Now, we need well defined innovation capabilities that will generate the ideas and intellectual capital necessary to sustain those businesses.